When the coronavirus pandemic brought the global economy to a near standstill this year, British fashion label Burberry was in the midst of a long-overdue turnaround that was starting to bear fruit, especially in its biggest market, China. In 2017, Burberry appointed former LVMH executive Marco Gobbetti as its CEO, and in 2018 hired Riccardo Tisci , formerly of LVMH-owned Givenchy, as chief creative officer. These changes at the top sent a clear sign that the brand known for its trench coats and check pattern was about to embark on a radical revamp. Tisci had turned Givenchy from a low-key Parisian label making elegant dresses into one of the hottest brands of the past decade, thanks in no small part to his penchant for sportswear and streetwear. Since then, brands such as Gucci, Louis Vuitton and Dior have successfully trodden that path, attracting increased interest in rising economies such as China by delivering more casual offerings. On the digital front, Burberry – the first brand to live-stream a catwalk show back in 2010 before Instagram emerged – has been a pioneer, but competitors have been quick to catch up, with innovations often targeted at their growing Chinese customer base. Last month, Burberry announced its first-quarter sales were down 45 per cent from a year earlier, and said it expects a decline of 15 per cent to 20 per cent in comparable sales for the second quarter. Luxury industry needs time to recover, says Burberry as sales plunge As the global economic downturn and fears the coronavirus pandemic will linger ravage the luxury industry, China, which so far has been able to contain the spread of Covid-19, seems well positioned to weather the crisis. According to consultancy Bain & Company, Chinese consumers will account for nearly 50 per cent of the global luxury market by 2025, while digital sales will represent 30 per cent of the worldwide market. So it’s no wonder luxury brands, from Dior to Moncler, are focusing their marketing and digital efforts on China for the foreseeable future. Burberry is leading the pack with an experiment in what it calls “social retail”. Last week the brand opened a store in the southern Chinese city of Shenzhen in partnership with Tencent , the company behind the messaging platform and all-purpose phone app WeChat. The store is Burberry’s take on what shops will look like in the digital age: places of discovery on a journey often starting on the web and ideally ending with a purchase, whether inside the physical shop or online. The idea of “the store of the future” or “a store of tomorrow for today”, as Burberry puts it, has been a key concern for brands trying to create an omnichannel experience for customers amid rising digital sales. The Shenzhen Burberry store uses a mix of social media, gaming and real-life interactions to entice a new generation of shoppers, who have fewer incentives to visit bricks-and-mortar stores when everything they need is available with a swipe on a phone screen. “From what we’ve observed at Burberry, the customer journey fundamentally starts digitally with research for information about brands that they find inspiring,” Gobbetti says during a video call. “But we see that customers still want to go into physical stores to transact [before the crisis, that’s where the majority of transactions were happening]. “Also there is a desire, especially among Asian shoppers, to have a relationship with store assistants. The human relationship is still very important.” Describing “social retail” as a way to create a continuous loop in interactions between customers and the brand, Gobbetti says that China, particularly Shenzhen, was an obvious choice to test this “pilot store”. “Twenty years ago you would originate ideas in the West; now it’s the other way around,” Gobbetti says. “It’s more dynamic in the East. Today is China and tomorrow it could be Japan or Hong Kong.” As a technology hub, Shenzhen, which is also where Tencent and other Chinese tech companies, including Huawei, are based, provides the perfect testing ground for the store concept, which Gobbetti says could be rolled out to other parts of China and the world, depending on the response. “When you look at the demographics and macros of Shenzhen, as an area it has higher growth than Beijing and Shanghai, and there’s a huge population under 30 because of all the tech workers,” he explains. Like many competitors, Burberry has been open about its reliance – and increased focus – on China. Since the country eased lockdown measures in May, the brand has been active with live streams, partnerships with influencers such as Mr Bags , and pop-up stores. “In such an uncertain environment you have to move in a very agile way from market to market,” Gobbetti says. “China and South Korea were the countries that rebounded much quicker than others.” Hong Kong has an incredible energy to bounce back and rebound. Of course we will have to look at our retail footprint if tourism from China will be severely impacted for a long time Burberry CEO Marco Gobbetti Though Burberry is far from the only top luxury brand in this situation, being overly reliant on one segment of the global population can be risky in the long term, according to Luca Solca, an analyst at equity broker Bernstein. “A spiky appeal to Chinese consumers – with less of a following in areas like Europe, Japan and the USA – can be an Achilles’ heel, as we have seen in the past in the case of Dunhill, for example,” Solca says. At a time when consumer confidence in the US and Europe is still low, global brands have little choice but to focus on the markets that are bouncing back, especially since Chinese consumers, who normally make the bulk of their luxury purchases on holidays to Europe, are now unable to travel. “Immediately after the lockdown in China there was an accumulated desire to shop, but it was limited to the first few weeks,” Gobbetti says. “Even though now there are some pockets of new virus cases, they are very localised and not affecting the whole of China, and our customers have resumed their normal way of life, have not lost their spending power and, if anything, they have more spending power because they’re not travelling or going out as much.” Gobbetti says that in tourist-driven markets such as the UK, Italy and France, Burberry has been homing in on its local clientele. Hong Kong, he adds, is a perfect example of this new-found attention on local customers at a time when international travel is not an option. The city, which before the outbreak of Covid-19 had been dealing with months of anti-government protests that caused a plunge in Chinese travellers, has been a hub for luxury shopping in Asia for years. Hong Kong, Gobbetti says, has set the standard in Asia for retail, hospitality and business travel, and he believes the city will maintain its role as a regional hub. “I’ve been in this business for many years and I’ve seen Hong Kong go through many crises, like the handover, Sars, the ‘umbrella revolution’,” he says. “But Hong Kong has an incredible energy to bounce back and rebound. Of course we will have to look at our retail footprint if tourism from China will be severely impacted for a long time, but right now we’re not making any decisions about closing stores.” A sore point among retailers in Hong Kong has been the unwillingness of the city’s commercial property landlords to give rent concessions at a time when sales have been abysmal. “The conversation with the landlords has always been very deep because we’ve been through many crises together, but what we’re facing now is very different from before,” Gobbetti says. “We’ve been at the table with them and this is a partnership: we cannot operate without them and they can’t exist without retailers like us. The two interests are going to come together at some point in time, as they have in the past. They’re tough negotiators, but they live in Hong Kong so they know and have been receptive.” In spite of Burberry’s long-time focus on digital marketing, Gobbetti still believes that physical interactions and live events such as fashion shows will not disappear, even in the aftermath of Covid-19. “Out of a very dramatic situation like this, the positive effect is that it has made us more innovative and creative around the way we get to our customers, present our collections and even how we developed them when factories closed,” Gobbetti says, adding that the brand plans to show its spring/summer 2021 line in the British countryside in September with a real-life catwalk show, but without guests. Like many luxury brands coping with the crisis, Burberry is looking at a future where growth will come from two fronts: digital channels and Chinese customers. Unlike many of its peers, Burberry doesn’t have the backing of a luxury conglomerate such as LVMH , owner of brands such as Dior and Louis Vuitton, or Kering, the company behind Gucci and Saint Laurent. According to Solca, however, scale is not the only issue. “Burberry ranks lower than the top brands at both major French conglomerates,” he explains. “This is a problem: when consumers cut their luxury spend and concentrate it on the top brands on their shopping lists, Burberry has a higher risk of falling off.” Burberry’s experiment with social retail in Shenzhen will provide insight into its ability to stay innovative and keep delighting its most important consumer base, but ultimately the brand’s success in creating desirable products that appeal to customers all over the world will be the test of its turnaround efforts under Gobbetti and Tisci.